Understanding KPIs (Key Performance Indicators) in Product Management

“What gets measured, gets managed.” – Peter Drucker

Introduction:

Ever wonder how successful products are measured?

It’s all about Key Performance Indicators (KPIs).

These metrics act like a GPS, helping product managers navigate through data to see how well their product is meeting user needs and business goals.

But what exactly are KPIs, and why are they so important?

In this article, we’ll dive into the world of KPIs, breaking down what they are, the different types used in product management, and how to use them effectively to continuously improve your product.

Understanding KPIs can give you the insight you need to guide your product to success. Let’s get started by understanding what makes a good KPI.

Defining KPIs:

Let’s start with the basics—what exactly are KPIs? KPIs, or Key Performance Indicators, are measurable values that help you assess how well your product is performing against specific objectives.

Think of them as the markers along the path that tell you if you're heading in the right direction. Whether you're working on a SaaS platform, a mobile app, or any type of software product, KPIs will help you understand if you're achieving the goals you’ve set out.

Without them, it’s easy to lose focus or chase metrics that don’t actually contribute to the overall success of your product.

KPIs are not just numbers that sit on a dashboard—they are your guiding stars. Every product manager should know that KPIs are deeply connected to both business goals and user satisfaction. They give you insights into how well your product is meeting customer needs and how effectively your team is delivering on business objectives.

For example, if you’ve launched a new feature, KPIs can show you how often it’s being used, whether it’s solving a user pain point, and if it’s driving revenue. It’s like having a feedback loop that tells you what’s working and what’s not.

But here’s the kicker—not all KPIs are created equal. You can’t just pick random metrics and expect them to be meaningful. The key to effective KPIs is making sure they are SMART: Specific, Measurable, Achievable, Relevant, and Time-bound.

Let’s break that down a bit. A good KPI should be specific—for instance, tracking how many users sign up for your free trial is more useful than just tracking “engagement.” It should also be measurable, meaning you can easily gather the data you need without any ambiguity.

Now, a KPI has to be achievable; there’s no point in setting targets you know your team can’t realistically hit. It’s demotivating, and worse, it doesn’t help you improve the product.

It should also be relevant—that means focusing on metrics that align with your product’s overall objectives. If customer satisfaction is a key driver for your product, then tracking the Net Promoter Score (NPS) or Customer Satisfaction Score (CSAT) makes sense.

Lastly, the KPI should be time-bound—you need a clear time frame for achieving it, whether it’s a week, a quarter, or a year.

Another important thing to remember is that KPIs should evolve with your product. In the early stages of development, you might focus on KPIs like adoption rates and initial user feedback.

As your product matures, you’ll shift your attention to other indicators like churn rates, customer lifetime value, or even profitability. It’s a fluid process, and part of being a successful product manager is knowing when to pivot your focus.

A common mistake is trying to track too many KPIs at once. Trust me, I’ve been there—it’s easy to get caught up in all the data at your fingertips.

But tracking a dozen different metrics at the same time usually leads to confusion. Instead, focus on a handful of KPIs that truly matter.

These should be the ones that directly impact your product’s success and align with the goals set by your team and stakeholders. The fewer KPIs you have, the more attention and resources you can give to improving them.

Types of KPIs in Product Management:

Now that we’ve nailed down what KPIs are, let’s talk about the different types you’ll encounter in product management. Trust me, not all KPIs are created equal, and knowing which ones to focus on is critical to understanding how well your product is doing.

I like to break KPIs down into three main categories: usage metrics, financial metrics, and customer satisfaction metrics. Each of these offers a different view of your product’s performance, and when you combine them, you get a full picture of what’s going on.

Let’s kick things off with usage metrics. These are the KPIs that tell you how engaged users are with your product. Two of the most common metrics in this category are Daily Active Users (DAUs) and Monthly Active Users (MAUs).

If you’ve worked on an app or any kind of digital platform, you’ve probably heard of these terms. They’re a great way to measure how many people are interacting with your product on a daily or monthly basis. For example, if you have 10,000 DAUs, that means 10,000 unique users are finding value in your product every single day. It’s like a pulse check for your product—if your DAUs are climbing, it usually means you’re on the right track.

However, keep in mind that DAUs and MAUs (Daily and Monthly Active Users) don’t tell the whole story. Sure, a lot of users might be logging in, but what are they actually doing? That’s where more specific usage metrics come in, like session duration and feature adoption rates.

For instance, if users are spending just a few seconds on your app and then leaving, that’s a red flag, even if your DAU number looks good.

On the flip side, if you’ve rolled out a new feature and the adoption rate is high, it’s a clear signal that your users are engaged and finding value in that specific feature.

Next, let’s chat about financial metrics. As a product manager, you’re not just building products—you’re building a business. So, keeping an eye on your product’s financial health is crucial.

A couple of big ones here are revenue growth and customer acquisition cost (CAC). Revenue growth is pretty self-explanatory: Is your product making more money than it did last quarter?

That’s a strong indicator of success, but it’s important to look at it in the context of your other KPIs. For instance, if revenue is growing but your DAUs are flat, you might be relying too heavily on a small group of paying users, which could be risky in the long term.

Customer acquisition cost (CAC), on the other hand, tells you how much you’re spending to bring in each new customer. This is where things get interesting because you can use this metric to figure out if your marketing and sales efforts are actually paying off.

Let’s say it costs you $100 to acquire a new user, but that user only brings in $50 in revenue. That’s a problem! Ideally, you want to keep your CAC as low as possible while driving up revenue, so you’re getting the most bang for your buck.

Another key financial metric to watch is customer lifetime value (CLV). This one tells you how much revenue a customer is expected to bring in over the entire time they use your product.

When CLV is higher than CAC (Customer acquisition cost), it means your product is in a healthy place—your customers are sticking around and bringing in more value over time than it costs to acquire them. Balancing these financial KPIs is key to building a sustainable product that not only delights users but also supports your business goals.

Finally, we can’t forget about customer satisfaction metrics. After all, it doesn’t matter how many users you have or how much revenue you’re bringing in if your customers aren’t happy.

Two popular metrics in this category are the Net Promoter Score (NPS) and the Customer Satisfaction Score (CSAT). NPS is a simple but powerful tool—it asks users how likely they are to recommend your product to others on a scale of 1 to 10. The higher the score, the more satisfied your users are. It’s also a great way to gauge customer loyalty, which is essential for long-term growth.

The Customer Satisfaction Score (CSAT) is another useful metric, usually based on direct feedback from users after they’ve interacted with your product or customer support.

If your CSAT score is consistently high, it’s a good indication that you’re meeting or exceeding user expectations. On the flip side, a low CSAT score means you’ve got some work to do in improving the user experience.

Both NPS and CSAT are critical in understanding how users feel about your product, and they give you clear signals on where you need to improve.

To sum it up, usage metrics tell you how engaged your users are, financial metrics help you gauge the economic health of your product, and customer satisfaction metrics show how happy your users are with the experience.

As a product manager, balancing all three types of KPIs will help you make more informed decisions, prioritize your roadmap, and ultimately deliver a product that not only performs well but also delights users and drives business growth.

Utilizing KPIs for Continuous Improvement:

So now that we’ve explored the types of KPIs and how they can tell you different things about your product, the next step is figuring out how to actually use these KPIs to make meaningful improvements.

KPIs aren’t just numbers to look at—they’re a tool to help you make smarter decisions and guide your team toward better results. Let’s talk about how you can leverage them for continuous improvement.

One of the first things you want to do is regularly track and analyze your KPIs. This might sound obvious, but you’d be surprised how many product teams don’t have a solid routine for monitoring their metrics. By keeping a close eye on KPIs, you can identify trends and patterns that show you what’s working and what’s not.

For example, if you see a steady increase in your Net Promoter Score (NPS), that’s a strong signal that your recent updates are resonating with users. On the flip side, if your customer acquisition cost (CAC) starts creeping up, you know it’s time to dig into what’s causing that increase—maybe your marketing channels aren’t as effective as they used to be.

It’s important to note that tracking KPIs should be an ongoing process. It’s not something you do once and forget about. Set up regular check-ins, whether it’s weekly or monthly, to review the data and discuss it with your team.

That way, you’re always staying on top of your product’s performance and can pivot quickly if needed. I’ve seen product teams make huge strides simply by adopting a habit of consistent KPI reviews.

Once you’ve got the data, the next step is to use those insights to inform your product decisions. Let’s say you’re tracking usage metrics like Daily Active Users (DAUs) and you notice a sudden drop. That’s not just a number on a dashboard—it’s telling you something important.

Maybe there’s a bug in your latest release, or maybe users are struggling to find value in a new feature. Either way, it’s a sign that something needs attention. Armed with that knowledge, you can dig deeper, talk to users, and prioritize a fix or an improvement in your product roadmap.

Another example could be financial metrics like customer lifetime value (CLV). If you notice that CLV is lower than expected, it could mean that users aren’t sticking around as long as they should. Maybe there’s a gap in your onboarding process, or perhaps your product isn’t meeting long-term user needs.

By diving into the KPIs, you can uncover the root cause of the problem and make more informed decisions about where to focus your resources. The beauty of KPIs is that they take the guesswork out of decision-making—you’re relying on data, not gut feeling, to guide your next steps.

But it doesn’t stop at internal decision-making. Another critical aspect of utilizing KPIs is to share the results with your team and stakeholders. When everyone is on the same page about how the product is performing, it fosters a culture of transparency and accountability.

I can’t stress enough how valuable it is to have open discussions about KPIs during team meetings. When team members can see how their work directly impacts key metrics, it creates a sense of ownership and motivation to improve.

For example, if you share that customer satisfaction metrics like the Customer Satisfaction Score (CSAT) are on the rise, it’s a great opportunity to celebrate those wins.

On the other hand, if your churn rate is spiking, sharing that with the team allows everyone to come together and brainstorm solutions. You’re not placing blame—you’re collectively problem-solving.

By making KPIs a regular part of your team’s conversations, you’re creating a data-driven culture where everyone understands what success looks like and what they need to do to achieve it.

Lastly, KPIs are invaluable for prioritizing features and adjusting strategies. Let’s say you’ve got a long list of potential features or improvements for your product. Instead of trying to tackle everything at once, you can use KPIs to determine which areas need immediate attention and which ones can wait.

If your usage metrics show that a specific feature has low adoption but high engagement for those who do use it, that’s a good indication it’s worth improving and promoting further.

On the other hand, if a feature isn’t being used at all, you might want to deprioritize it and focus on something that moves the needle for your users.

KPIs also help you stay agile. The product landscape is constantly changing, and what worked yesterday might not work tomorrow.

By regularly reviewing your KPIs, you can make strategic adjustments to your roadmap, whether that’s tweaking your pricing model, refining your customer support processes, or shifting focus to a new target market.

Continuous improvement is all about staying flexible and responsive, and KPIs give you the tools to do just that.

Conclusion:

Understanding and leveraging KPIs goes beyond just tracking numbers—they shape how we make decisions, drive growth, and continuously improve.

In our daily lives, whether managing a product or working with a team, KPIs help us focus on what truly matters, ensuring that our efforts are aligned with our goals.

By regularly analyzing and acting on KPI data, we stay agile, make smarter choices, and identify opportunities for improvement.

In the long run, KPIs are the compass that guide us toward sustainable growth and success, allowing us to keep evolving in an ever-changing market.

When embraced fully, KPIs not only help products thrive, but they also foster a culture of accountability, transparency, and ongoing progress—critical elements for any successful business.

This article is part of the Becoming a Product Manager Guide.